How good is this formula -> Age x Networth / Yearly Expenses. >1000 you can retire?

[ChiliPepr]

How do you put a “net worth” number on a recurring income? Say you have $1000/mo income what is that equivalent to?

You don't. You would apply the recurring income to reduce your monthly expenses by $1,000.

For example, the formula give in this thread is "Multiply Age x Networth, then divide by Yearly Expenses". In this case, if you are 60, have a net worth of $1,000,000, yearly expenses of $60,000, but also have reoccurring income of $1,000/month; your formula would be (60*1,000,000)/(60,000-12,000)=1,250

 

[Rianne]

I

Multiply Age x Networth, then divide by Yearly Expenses

If it is greater than 1,000, you can retire.
Age is the average between husband and wife.

What do you guys think.

Does that mean retire for 20 yrs? 30yrs? 40yrs? I think that part is left out.

 

[ChiliPepr]

Does that mean retire for 20 yrs? 30yrs? 40yrs? I think that part is left out.

That is taken care of with your age multiplier...

According to this formula, if you need $50,000/year and have $1,000,000:
If you are 40, your result is 800, not enough to retire...
If you are 60, your result is 1,200, enough to retire.

Granted, if you are 60 and plan to live to 120, you do not have enough. This assumes you will be passing away around the standard lifespan.

 

[imoldernu]

Granted, if you are 60 and plan to live to 120, you do not have enough. This assumes you will be passing away around the standard lifespan.

Exactly... current age is used to calculate life expectancy, for purposes of the formula. For instance, if you are 60 now, your SS life expectancy would be 83, and that is the age used in the formula.

Most calculators that we use rely on probability.

 

[ncbill]

IMHO people here are way too optimistic about their lifespan.

So a 6% WR @ age 60...isn't likely to matter.

I favor that "death" retirement calculator...for me...1/3 odds by 75, 2/3 odds by 85.

 

[zack59]

What asset allocation is this formula based on?

 

[jim584672]

Who is going to model this and make a graph? I am too lazy.

 

[sengsational]

Who is going to model this and make a graph? I am too lazy.

x is age, y is the number of years spending saved (net worth / annual expenses). This rule says if you're in one of the brown areas, don't retire. The line starting at y=25 is the "rule".

 

[hesperus]

I get 7260. I guess we're OK?
Perhaps we need to up spending.

 

[dtbach]

I get 7260. I guess we're OK?
Perhaps we need to up spending.

You probably should!!

 

[walkinwood]

This formula leaves out an important variable. Asset Allocation is just as important.

 

[Totoro]

x is age, y is the number of years spending saved (net worth / annual expenses). This rule says if you're in one of the brown areas, don't retire. The line starting at y=25 is the "rule".

Out of chart .. I'm 38.

 

[copyright1997reloaded]

Age x Networth / Yearly Expenses. >1000

A little Algebra I to solve for Yearly Expenses
Age x Networth / (Yearly Expenses * 1000) > 1

Age x Networth / 1000 > Yearly Expenses

So, if Age = 60 and Networth = $1,000, then (Max) Yearly Expenses needs to be < $60,000. Age 40 yields $40,000.

I like this formula, I can spend more as I am over 40.

 

[sengsational]

Out of chart .. I'm 38.

My bad! I just put arbitrary limits. You're such a kid T!

 

[cyber888]

Age x Networth / Yearly Expenses. >1000

A little Algebra I to solve for Yearly Expenses
Age x Networth / (Yearly Expenses * 1000) > 1

Age x Networth / 1000 > Yearly Expenses

So, if Age = 60 and Networth = $1,000, then (Max) Yearly Expenses needs to be < $60,000. Age 40 yields $40,000.

I like this formula, I can spend more as I am over 40.

Hehe. You mean Networth = $1,000,000. That works to determine expenses